[Analyse why capital budgeting is important in the UK small cap companies]

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Acknowledgement

This research would not have been possible without the support of my family and my research supervisor so I would like to say thank you to them for their help.

DECLARATION

I [type your full first names and surname here] am declaring that this dissertation is my own work and does not represent the ideas of the university. This research has not been earlier submitted for any educational purpose.

Signed __________________ Date _________________

Abstract

The capital budget relates to the whole process of planning expenditures whose returns are expected to extend beyond one year. Since then, the choice of a year is arbitrary, but represents a convenient reference point for distinguishing between different types of expenses. Some obvious examples of capital expenditures are represented by the cost of land, buildings and equipment, as well as permanent additions to working capital related to sales growth. It is also likely that an advertising campaign or promotion or a research and development have an effect that exceeds one year, therefore, these concepts are also classified as capital expenditure budget. The capital budgeting decisions should relate to the overall strategic planning of the company, the strategy involves a company's planning for the future. Inherently, the capital budget requires a commitment to the future. The purchase of an asset with an economic life of 10 years means a long waiting period before they know the final results of such actions. Over a period of 10 years, economic and financial environment may cause turbulent considerable uncertainty. The capital budget should be integrated into strategic planning as excessive or inadequate investment will have serious consequences on the future of the company. If it has invested too much in fixed assets, incur unnecessarily high costs. If you have not spent enough, have inadequate capacity and may lose a portion of their participation in the market for competition. A good capital budget is used to better determine the timing of asset acquisitions and the quality of assets purchased. This result is a consequence of the nature of capital goods and their producers. The importance of the capital budget is that the expansion of assets usually involves great expense, before a company spends a lot of money, should develop appropriate plans. A company wishing to implement a larger program of capital expenditures need to plan your financing with several years in advance to ensure they have the funds required for expansion. A number of factors combine to commercial budget is perhaps the most important decision of financial management. In addition, all departments of a company - Production, Marketing, etc. - Are vitally affected by the capital budgeting decisions.

Contents

ACKNOWLEDGEMENTII

DECLARATIONIII

ABSTRACTIV

CHAPTER 1: INTRODUCTION1

Background of the study1

Problem Statement1

Research Aims and Objectives1

Significance of the Study2

Rationale/ Nature of the study2

Hypothesis/Research Question2

CHAPTER 2: LITERATURE REVIEW3

Traditional Capital Budgeting Techniques3

Company X4

Traditional Capital Budgeting Techniques4

Payback Method Theory5

Payback Method Advantages5

Payback Method Disadvantages6

Payback Period Key Attributes7

Discounted Payback Period Method Theory7

Advantages of the Discounted Payback Period8

Disadvantages of the Discounted Payback Method8

Discounted Payback Method Key Attributes9

Net Present Value Theory9

Net ...